Housing As A “Nest Egg” – Why Homeowners Have Far Higher Net Worths

    The average net worth of Americans who own homes is $1.1 million. The average net worth of Americans who don’t own homes is about $96,000 – according to this Business Insider article.

    Do homeowners have high net worths because they came from wealth, or do they have high net worths because they bought homes?

    I fervently believe it is the latter because homeownership is the best “forced retirement plan” there is.

    It is a well-known fact that most Americans don’t begin to save enough for retirement, but owning a home effectively forces them to save by virtue of making mortgage payments every month.

    These forced retirement/nest egg/mortgage payments are even more beneficial when you take into account that they are usually replacing rent payments that build up no equity or retirement nest eggs.

    Yes, we could find a cheap house to rent and then sock away our savings for the rest of our lives – and be better off in the end – according to some housing bears.

    BUT – those analyses never account for the fact that rents increase in ways that housing payments do not, and they never account for the fact that few Americans are disciplined enough to invest all of the savings they might get from renting instead of buying.

    So – my utterly biased and self-serving (but very accurate) advice is for young people to take the plunge into homeownership as soon as they can – irrespective of what “the housing hubbub” is in the financial press.

    Tony and Gwen Get Rich – Buying at the “Worst Possible Times”

    I have close friends who bought homes at the “worst possible time” on three separate occasions, and they just retired to Nevada with $1.5 million in equity.

    They bought a tiny home in 1985 when rates were close to 13% – and their family members implored them not to because they were all still scarred by the recent recession.

    They then sold and bought a larger home in a modest neighborhood in 1989 when rates were over 10% – only to see their home value correct by 20% over the next few years.

    They rode out the early 1990s correction, sold again and bought a fixer in a nicer neighborhood in 1996 – when rates were over 8%, and even I was concerned because the house needed so much work and I thought they were overpaying.

    Needless to say, they did fix up that house, slowly but surely with sweat equity, and its value was close to $2 million by the time they sold.

    I’ve repeated this story at least 20 times in my blogs over the years because it illustrates the benefits of buying at a young age so well and because Tony and Gwen were not wealthy by any means.

    He was a print salesman and she worked in admin for a bank – and neither got a penny of help from their families.

    They are entirely self-made and living the American dream.

    I might finally add though that they never once took cash out of their homes after they appreciated to buy cars, boats, fancy remodels or cool vacations (which is a very important consideration).

    They simply paid their mortgage and accumulated wealth.

    Jay Voorhees
    Founder | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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